Bangkok
20 September 2008
As financial markets continued to recover from the recent wave of
selling, Thailand's central bank governor has recommended greater
surveillance by regional central banks and the need for more policy
measures in the hands of central banks to deal with similar crises in
the future. As Ron Corben reports from Bangkok.
According to
Thailand Central Bank Governor Tarisa Watanagase, an underlying
similarity of the current financial crisis in the United States and
Asia's financial troubles during the 1990s is poor management of the
finance and banking sectors of the economy and unsound monetary
policies.
Tarisa told a symposium of senior central bank
officials Saturday the "complexity and magnitude" of the current crisis
in financial markets also raised questions whether central banks had
sufficient policy tools to deal with the turbulence. The financial
markets, she said, had grown more complex over recent years.
"Looking
at the overall picture, what is now going on in Wall Street may remind
us of what happened in our region 11 years ago," said Tarisa. "At a
glance, the root causes of both events are strikingly similar:
investors taking excessively high risks creating asset price bubbles,
against the background of lax prudential and monetary policy."
Asia's
financial crisis swept away billions of dollars in investments and
caused a sharp contraction in economic growth. Millions of people lost
their savings and their jobs. Tarisa warned resolving the current
financial crisis is likely to be more difficult.
"With today's
financial environment, however, changes in the regulatory requirements,
market players, business models of financial firms, as well as economic
conditions have all played a part in escalating the impact of financial
turmoil through the creation of a broader and deeper financial system,"
said Tarisa.
Tarisa said central banks need to be prompt with
pre-emptive actions, given changing market conditions. She said
policies need to be flexible to deal with evolving challenges, while
central banks should remain independent to ensure credibility. She also
called for greater regional cooperation among the central banks.
In
the past week central banks, led by the United States, European Union,
Japan, Australia and others in South East Asia, have pumped over $200
billion into fragile capital markets to ease tight credit conditions
and restore confidence.
Panic swept global financial and share
markets after leading investment house, Lehman Brothers collapsed. The
U.S. government was also called on to mount an $85 billion rescue
of troubled international insurer, AIG.
The crisis raised
questions over the U.S. financial system and the prospect of the merger
of more financial firms to remain solvent. The crisis was a result of
massive debts in the U.S. housing sector, that led to the most severe
housing recession in 80 years.